Gov. Scott's hot potato: Citizens Insurance

February 3, 2013|By Sun Sentinel Editorial Board

Citizens Insurance is a hard company to like, but if its leaders are to be believed, Floridians are about to see it take a more "moderate" approach to hiking premiums and slashing coverage, even as it helps create a more competitive insurance marketplace.

And if Gov. Rick Scott is serious about his call to keep Florida an affordable place to live, he should fight to keep the state-owned company's current cap on rate hikes — no more than 10 percent per year. For if the Republican governor allows insurance premiums to spike, he will hurt our housing market, our battered economy and his re-election chances.

The cost of insurance is a ripe political issue. Former Gov. Charlie Crist — now a Democrat, always a "populist" — understood this in 2006, when he froze Citizens' rates for three years. Florida's then-speaker of the Florida House, Marco Rubio, agreed, recognizing that struggling homeowners can't afford double-digit increases in insurance premiums every year.

Solutions aren't easy, of course. Private insurance companies don't like Florida, especially coastal homes, mobile homes and homes more than 50 years old. The inability to find companies to insure these properties is the reason Citizens was created as an "insurer of last resort."

Insurance is a complicated business, given the cost of reinsurance, shareholder expectations and the pressure on premiums when investment income drops. And a few years back, major carriers created "pup" companies that concentrated risk in individual states, rather than nationwide. Given Florida's history of hurricanes, this concentration led our premiums to skyrocket.

To build support for a national solution — a national catastrophic fund — it was always thought a hurricane would have to hit Manhattan. And in late October, Hurricane Sandy did. But rather than seize the moment, Congress last week handed the Northeast a $50 billion relief check.

But Tallahassee operates under the assumption that Congress would never help Florida, so we must pay now for disasters yet to come.

And our lawmakers are deeply divided over the financial picture at Citizens, now the state's biggest insurer, despite it having built a $6.8 billion reserve over seven hurricane-free years.

Here's the rub. Because it's state-owned, Citizens doesn't have to buy the level of reinsurance required of private carriers. If a 100-year storm hits and Citizens can't pay all claims, it can instead impose a significant assessment on property-insurance policyholders across the state, no matter their carrier.

Lawmakers from inland counties want that to change. Rather than assess all policyholders, they want Citizens to charge its 1.4 million customers the "actuarially sound" rates expected of private companies.

If you were in their shoes, you might feel the same way. But the 55 percent of Citizens' customers who live in South Florida are not in their shoes, and a "variable rate" proposal being floated could triple premiums here.

And lawmakers should remember that 80 percent of Floridians live in "coastal" communities, which does not mean beach living. In South Florida, if you live east of I-95, your only choice is Citizens.

It's also worth noting that much of Florida's economy is generated in coastal communities and our taxes help support inland counties that lack the population or business activity needed to support essential government services.

And remember, when four hurricanes criss-crossed this peninsula in 2005, inland counties were devastated, too.

Because of Tallahassee's concerns, Citizens has been slashing coverage, rolling back discounts and even proposed lifting the 10 percent cap on annual premium hikes. Against this backdrop came news about the company's extravagant spending on executive travel and compensation.

Today, CEO Barry Gilway, who recently bragged about making coverage so terrible that no one should want to buy it, is taking a different tack. He says he better wants to communicate with customers and meet their needs. "The fact that we introduced 31 coverage changes, none of which were well received, hurt our reputation," he said in an outreach visit with the Sun Sentinel Editorial Board last week.

Gilway has imposed stricter limits on spending and is focused on rooting out fraud. He supports creating an inspector general and a clearinghouse to help homeowners find more insurance options. And he demonstrated courage in telling senators he doesn't support the variable rate increase.

Similarly, board chair Carlos Lacasa says Citizens is "very concerned about our public image and the confidence people have in the company, and we're committed to reversing these things." This includes moderating the rollbacks people have been experiencing, he said.

But the company's masters reside in the Florida Legislature and the Governor's Mansion.

Gov. Scott has yet to speak up on behalf of Citizens' customers. Rather, he's said only that the company is undercutting the market with too-low rates.

Given his upcoming re-election campaign, the governor should treat the citizens of Citizens with more care. For if he pushes rate hikes that increase our cost of living and chill our economy, he can kiss South Florida good-bye.